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The Daily Magic Formula Stock for 08/13/2008 is Gymboree Corp (The). According to the Magic Formula Investing Web Site, the ebit yield is 13% and the EBIT ROIC is 50-75 %.

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BUSINESS OVERVIEW

GENERAL

As of February 2, 2008, the Company conducted its business through five primary divisions: Gymboree, Gymboree Outlet, Janie and Jack, Crazy 8, and Gymboree Play & Music.

Gymboree: Gymboree stores offer high-quality, fashionable, child-appropriate apparel and accessories characterized by bright colors, patterns and whimsical graphics, complex embellishments, comfort, functionality, and durability for children sizes newborn through 12. As of February 2, 2008, we operated 597 Gymboree stores, including 565 stores in the United States, 30 stores in Canada and 2 stores in Puerto Rico, as well as an online store at www.gymboree.com.

Gymboree Outlet: Gymboree Outlet stores provide high-quality childrenâ€™s apparel and accessories in the same size ranges as traditional Gymboree stores but at outlet prices. The majority of our Gymboree Outlet product is developed and manufactured exclusively for the Gymboree Outlet stores. As of February 2, 2008, we operated 82 Gymboree Outlet stores in the United States.

Janie and Jack: Janie and Jack shops are highly differentiated from Gymboree stores. Janie and Jack shops offer distinctive, finely crafted clothing and accessories for boys and girls sizes newborn through 8. Lush fabrics, a hand-made quality and details such as hand-embroidery, smocking and vintage prints are utilized to create classic looks. Shops have an old mercantile boutique style with special details such as wainscoting and distressed wooden armoires. As of February 2, 2008, we operated 93 Janie and Jack shops in the United States, as well as an online shop at www.janieandjack.com .

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Crazy 8: Crazy 8 stores provide wholesome age-appropriate fashion, at price points approximately 30% lower than Gymboree. Through merchandise design, product presentation, store environment, customer service and packaging, Crazy 8 stores reflect an upscale store experience at mass-market prices. Crazy 8 apparel is offered in sizes newborn through 14, and addresses a broader demographic customer base than Gymboree. The product assortment is a balanced offering of boy and girl product. As of February 2, 2008, we operated 14 Crazy 8 stores in the United States, as well as an online store at www.crazy8.com .

Gymboree Play & Music. Gymboree Play & Music offers children ages newborn to 5 years the opportunity to explore, learn and play in an innovative parent-child program. Gymboree Play & Music offers an array of classes developed by early childhood experts, as well as birthday parties and developmental toys, books and music. As of February 2, 2008, Gymboree Play & Music programs included three Company-operated play centers in California and 556 franchisee-operated play centers, of which approximately 48% are located in the United States, and the remaining 52% are located in 29 other countries: Argentina, Australia, Canada, Chile, China, Colombia, Costa Rica, Ecuador, El Salvador, France, Hong Kong, Indonesia, Ireland, Japan, Malaysia, Mexico, Panama, Peru, Philippines, Portugal, Singapore, South Africa, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey and the United Kingdom.

Gymboree was organized in October 1979 as a California corporation and re-incorporated as a Delaware corporation in June 1992.

RETAIL STORES

As of February 2, 2008, the Company operated a total of 786 retail stores, including 754 stores in the United States (565 Gymboree stores, 82 Gymboree Outlet stores, 93 Janie and Jack shops, and 14 Crazy 8 stores), 30 Gymboree stores in Canada and 2 Gymboree stores in Puerto Rico. The Company also operates three online stores at www.gymboree.com , www.janieandjack.com , and www.crazy8.com .

In 2007, the Company opened 95 stores, including 24 Gymboree stores, 40 Gymboree Outlet stores, 13 Janie and Jack shops, 14 Crazy 8 stores in the United States, 2 Gymboree stores in Canada and 2 Gymboree stores in Puerto Rico. The Company also relocated or remodeled 52 Gymboree stores and closed 6 Gymboree stores and one Janie and Jack shop. During 2008, the Company plans to open approximately 100 new stores, including 20 Gymboree stores, 40 Gymboree Outlet stores, 20 Janie and Jack shops, and 20 Crazy 8 stores. The Company also plans to remodel, relocate or expand approximately 20 Gymboree and Janie and Jack stores.

The Gymboree online store at www.gymboree.com offers the entire Gymboree product offering for children between the sizes of newborn through 12. The site also offers online registration for Gymboree Play & Music classes at selected U.S. locations. The Janie and Jack online store at www.janieandjack.com offers the entire Janie and Jack product offering for children sizes newborn through 8. The Crazy 8 online store at www.crazy8.com offers the entire Crazy 8 product offering for children sizes newborn through 14. The Company fully integrates its online stores and retail stores in determining pricing, product assortment and promotional strategies. The Company also has a â€śSave the Saleâ€ť policy, whereby retail stores order merchandise for customers from the online stores. In addition, customers are allowed to return merchandise purchased online at traditional retail stores and vice versa.

SUPPLIERS

The majority of our apparel is manufactured to our specifications by approximately 120 independent manufacturers in Asia (primarily China, Thailand, Indonesia and Vietnam), as well as in the United States, Central America, the Middle East, and South America. The Company purchases all products in U.S. dollars. One buying agent manages over 90% of our inventory purchases. We have no long-term contracts with suppliers and typically transact business on an order-by-order basis. All of our factories undergo annual audits for social accountability by an independent third party. In addition, all products undergo a quality audit performed by independent third parties.

SEASONALITY AND COMPETITION

The Companyâ€™s operations are seasonal in nature, with sales from our retail operations peaking during the fourth quarter, primarily during the holiday season in November and December. During fiscal 2007, 2006 and 2005, the fourth quarter accounted for approximately 30% of our net sales from retail operations.

Our Gymboree, Janie and Jack, and Crazy 8 brands compete on a national level with BabyGap and GapKids (divisions of The Gap, Inc.), and certain leading department stores operating in malls, outlet centers or street locations, as well as certain discount retail chains such as Old Navy (a division of The Gap, Inc.), The Childrenâ€™s Place, Wal-Mart and Target. Our Gymboree, Janie and Jack, and Crazy 8 brands also compete with a wide variety of local and regional specialty stores, with certain other retail chains, and with childrenâ€™s retailers that sell their products by mail order, over the Internet or through outlet malls. The principal factors of competition for retail sales are product design, product quality, brand image, customer service and pricing. Our goal is to provide our customers with high-quality apparel with an excellent price/value relationship. We design and produce our apparel exclusively for sale at our retail and online stores.

TRADEMARKS AND SERVICE MARKS

In the United States, the Company is the owner of the trademarks and service marks â€śGYMBOREE,â€ť â€śJANIE AND JACK,â€ť â€śCRAZY 8,â€ť and â€śGYMBOREE PLAY & MUSIC,â€ť and the trademarks â€śGYMBO,â€ť and â€śGYMBUCKS.â€ť These marks, other than â€śCRAZY 8,â€ť and certain other of our marks are registered in the United States Patent and Trademark Office. The mark â€śGYMBOREEâ€ť is also registered, or is the subject of pending applications, in approximately 79 foreign countries. Each federal registration is renewable indefinitely if the mark is still in use at the time of renewal. Our rights in the â€śGYMBOREE,â€ť â€śJANIE AND JACK,â€ť and â€śCRAZY 8â€ť marks and other marks are a significant part of our business. Accordingly, we intend to maintain the marks and the related registrations. We are not aware of any material claims of infringement or other material challenges to our right to use the â€śGYMBOREE,â€ť â€śJANIE AND JACK,â€ť and â€śCRAZY 8â€ť marks in the United States.

The Company uses a number of other trademarks, certain of which have been registered with the United States Patent and Trademark Office and in certain foreign countries. We believe that our registered and common-law trademarks have significant value and that some of our trademarks are instrumental to our ability to both market our products and create and sustain demand for our products.

TEAM MEMBERS

As of February 2, 2008, the Company had approximately 10,400 full-time and part-time employees or 4,700 full-time equivalents. In addition, a significant number of seasonal employees are hired during each holiday selling season. None of the Companyâ€™s employees are represented by a labor union.

SEGMENT AND INTERNATIONAL FINANCIAL INFORMATION

Financial information for the Companyâ€™s two segments, retail stores and Gymboree Play & Music, and for its international subsidiary for each of the three fiscal years ended February 2, 2008, February 3, 2007, and January 28, 2006, is contained in Note 9 to the consolidated financial statements.

Less than 5% of the Companyâ€™s revenues were derived from outside the United States in fiscal 2007, 2006, and 2005, and less than 2% of the Companyâ€™s long-lived assets were located outside the United States in fiscal 2007, 2006 and 2005.

AVAILABLE INFORMATION

The Company makes available on its website at www.gymboree.com , under â€śOur Companyâ€”Financial Resources & SEC filings,â€ť free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such documents as soon as reasonably practicable after the Company electronically files or furnishes such materials to the U.S. Securities and Exchange Commission. The Company also makes available under â€śOur Companyâ€”Corporate Governance,â€ť its code of ethics as well as other documents and materials relating to corporate governance.

CEO BACKGROUND

Matthew K. McCauley has served as our Chief Executive Officer since January 2006 and Chairman of the Board since July 2006. Mr. McCauley joined The Gymboree Corporation in July 2001 as Director of Allocation and was named Vice President of Planning and Allocation in 2003, Senior Vice President and General Manager in February 2005, President in June 2005, Chief Executive Officer in January 2006, and Chairman of the Board in July 2006. Mr. McCauley has been on our Board of Directors since October 2005. Prior to joining The Gymboree Corporation, Mr. McCauley served in a variety of positions at The Gap, Inc., a clothing retailer, including Planning Manager from 2000 to 2001 and Manager of Business Solutions in 2001.

Blair W. Lambert has served as our Chief Operating Officer and Chief Financial Officer since January 2005, and has been on our Board of Directors since 2003. In August 2003, Mr. Lambert joined Illuminations.com, Inc., a candle and home decorating retailer, as the Chief Financial Officer. He was named to the Illuminations.com, Inc. Board of Directors in October 2003. Illuminations.com, Inc. filed for bankruptcy protection on January 9, 2004. Mr. Lambert has been a vineyard owner since October 2001 and, prior to becoming an officer of Illuminations.com, was a private consultant for specialty retail companies. Mr. Lambert served as the Chief Financial Officer of Bebe Stores, Inc., a clothing retailer, from June 1996 through October 2001. From 1988 to 1996, Mr. Lambert was employed by Esprit de Corp., a wholesaler and retailer of junior and childrenâ€™s apparel, footwear and accessories, most recently serving as Corporate Vice President of Finance. Mr. Lambert is a Certified Public Accountant.

Kip M. Garcia joined The Gymboree Corporation in May 2004 as Senior Vice President of Merchandisingâ€”Kids and was named President in January 2006. Prior to joining The Gymboree Corporation, Mr. Garcia served as Senior Vice President for Gap Kids, a division of The Gap Inc., a childrenâ€™s clothing retailer, from April 2002 to February 2003 and Senior Vice President for DFS Merchandising Ltd., a travel retail company, from February 1992 to February 2002.

Marina Armstrong has served as our Senior Vice President, Stores, Human Resources, and Play & Music since January 2006, and Secretary since December 2004. Ms. Armstrong joined The Gymboree Corporation in May 1997 as a District Manager and became a Human Resources Staffing Manager at the corporate office in 1998. Later that year she was promoted to Director, Recruiting and Staffing. Ms. Armstrong was named Vice President, Human Resources in 1999 and Senior Vice President, Stores, Human Resources and Loss Prevention in February 2005. Ms. Armstrong was named Assistant Secretary in March 2002 and Secretary in December 2004. Prior to joining The Gymboree Corporation, Ms. Armstrong held several human resources and store operations positions with other retailers including Saks Fifth Avenue, Robinsons-May and The Bon Marche.

Lynda G. Gustafson has served as our Vice President, Corporate Controller since February 2005. Ms. Gustafson joined The Gymboree Corporation in August 2001 as the Corporate Controller and was promoted to Vice President, Corporate Controller in February 2005. Ms. Gustafson was a business consultant for various companies from September 2000 to July 2001. From November 1993 to August 2000, Ms. Gustafson was at US Home & Garden, Inc., and was the Vice President, Finance and Principal Accounting Officer when she departed. Prior to that time, she spent five years in public accounting. Ms. Gustafson is a Certified Public Accountant.

Jeffrey P. Harris joined the Gymboree Corporation in July 2005 as Vice President, Finance. In 2004, Mr. Harris served as Vice President of Finance for CBS MarketWatch, a leading multimedia source of financial news and information, until its sale to Dow Jones in 2005. From 2001 to 2004, he was employed at Lucasfilm in the capacity of Corporate Controller. Prior to that time, Mr. Harris worked in the Consumer Products division of The Walt Disney Company, an entertainment company, as Controller and Director of Finance for its Art and Collectibles division. He also spent over seven years working in various finance and audit roles for the Tribune Company based in Chicago, Illinois. Mr. Harris is a Certified Public Accountant.

MANAGEMENT DISCUSSION FROM LATEST 10K

General

The Gymboree Corporation is a specialty retailer operating stores selling high-quality apparel and accessories for children under the GYMBOREE Â® , JANIE AND JACK Â® , and CRAZY 8â„˘ brands, as well as play programs for children under the GYMBOREE PLAY & MUSIC Â® brand. As of February 2, 2008, the Company conducted its business through five primary divisions: Gymboree, Gymboree Outlet, Janie and Jack, Crazy 8, and Gymboree Play & Music. As of February 2, 2008, the Company had 786 stores, including 754 stores in the United States (including 565 Gymboree stores, 93 Janie and Jack shops, 82 Gymboree Outlet stores, and 14 Crazy 8 stores), 30 Gymboree stores in Canada and 2 stores in Puerto Rico. The Company also operates three online stores at www.gymboree.com , www.janieandjack.com, and www.crazy8.com .

The Companyâ€™s net sales for fiscal 2007 increased to $920.8 million from $791.6 million in fiscal 2006 and $667.5 million in fiscal 2005. Net income totaled $80.3 million in fiscal 2007 compared to $60.3 million in fiscal 2006 and $33.7 million in fiscal 2005. Comparable store net sales (which include online stores), based on a 52-week period, increased 7% during fiscal 2007 versus 2006, 12% during fiscal 2006 versus 2005, and 9% during fiscal 2005 versus 2004.

The Company expects that future increases in net sales and net income will be dependent on, among other factors, its ability to:

Generate more sales to existing customers in the core Gymboree division through appropriate size expansions; growth of the Boy department business and increased Newborn product assortment; and

â€˘

Attract new customers through strategies such as direct mail campaigns and cross-brand marketing.

The Companyâ€™s long-term growth will depend on the development and implementation of newer retail concepts such as Janie and Jack, Gymboree Outlet, and Crazy 8, as well as continued investment in its core retail brand, Gymboree. As such, the Company expects to continue to devote time and effort to evaluating, developing, and testing new concepts when it perceives opportunities in the marketplace. Such efforts inevitably require significant management attention at all phases of the process and, for those concepts that the Company determines to launch, significant capital expenditures and losses during the early years of operation. Fiscal 2007 results include an operating loss of $0.11 per diluted share related to the Companyâ€™s new Crazy 8 concept. Such losses are expected to continue in fiscal 2008.

During 2008, the Company plans to open approximately 100 new stores, including 20 Gymboree stores, 40 Gymboree Outlet stores, 20 Janie and Jack shops, and 20 Crazy 8 stores. The Company also plans to remodel, relocate or expand approximately 20 Gymboree and Janie and Jack stores.

The Companyâ€™s year-end is on the Saturday closest to January 31. Fiscal 2007, which included 52 weeks, ended on February 2, 2008. Fiscal 2006, which included 53 weeks, ended on February 3, 2007. Fiscal 2005, which included 52 weeks, ended on January 28, 2006. Management estimates that the 53 rd week of fiscal 2006 contributed approximately $0.05 per diluted share to income from continuing operations.

Critical Accounting Policies

Critical accounting policies are those accounting policies and estimates that management believes are important to the portrayal of the Companyâ€™s financial condition and results of operations and require managementâ€™s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Share-Based Compensation. In fiscal 2006, the Company adopted SFAS No. 123(R), Share-Based Compensation (â€śSFAS 123(R)â€ť) using the modified prospective transition method and began accounting for share-based compensation using a fair-valued based recognition method. Under the provisions of SFAS 123(R), share-based compensation cost is estimated at the grant date based on the fair value of the award and expensed over the requisite service period of the award. The Company recognizes share-based compensation expense on a straight-line basis for options and awards with time-based service conditions, and on an accelerated basis for awards with performance conditions (see Note 7). Determining the appropriate fair-value model, calculating the fair value of share-based awards at the grant date and amortizing the fair value over the requisite service period requires considerable judgment, including estimating stock price volatility, expected term and forfeiture rates. The Company develops its estimates based on historical data and market information, which can change significantly over time.

The Company uses the Black-Scholes option valuation model to value options and shares issued under the Companyâ€™s Employee Stock Purchase Plan. Restricted stock units and shares are valued based on the fair market value of the Companyâ€™s common stock on the date of grant. The Company estimates stock price volatility based on an average historical volatility of its stock. Expected term and forfeiture rate assumptions are also derived from historical data, giving consideration to expectations of future employee behavior. Had the Company used alternative valuation methodologies or assumptions, the amount expensed for share-based awards could be significantly different.

Inventory Valuation. The Company reviews its inventory levels in order to identify slow-moving merchandise and broken assortments (items no longer in stock in a sufficient range of sizes) and reduces prices to sell that merchandise. The Company takes a physical count of inventories in all stores once a year, and in some stores twice a year. The Company performs cycle counts of inventory for its retail distribution center and online stores throughout the year. The Company records an inventory shrink adjustment upon physical counts and also provides for estimated shrink adjustments for the period between the last physical inventory count and each balance sheet date. Our inventory shrink estimate can be affected by changes in merchandise mix and changes in actual shrink trends.

Asset Impairment. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Long-lived assets at retail stores are reviewed for impairment once the related store has been open for a minimum of 18 to 36 months, depending on the brand. If the undiscounted future cash flows from the long-lived assets are less than the carrying value, the Company recognizes a loss equal to the difference between the carrying value and the fair value of the assets. Decisions to close a store or facility can also result in accelerated depreciation over the revised useful life. For locations to be closed that are under long-term leases, the Company records a charge for lease buyout expense or the difference between its rent and the rate at which it expects to be able to sublease the properties and related cost, as appropriate. Most closures occur upon the lease expiration. The Companyâ€™s estimate of future cash flows is based on experience and occasionally third-party advice or market data. However, these estimates can be affected by factors that are difficult to predict such as future store profitability, real estate demand and economic conditions.

Workersâ€™ Compensation. The Company is partially self-insured for workersâ€™ compensation insurance. The Company records a liability based on claims filed and an actuarially determined amount of claims incurred, but not yet reported. Any actuarial projection of losses concerning the Companyâ€™s liability is subject to a high degree of variability due to external factors, including future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. If the actual amount of claims filed exceeds estimates, reserves recorded may not be sufficient and additional accruals may be required in future periods.

Co-Branded Credit Card . The Company has co-branded credit card agreements (the â€śAgreementsâ€ť) with a third-party bank (the â€śBankâ€ť) and Visa U.S.A. Inc. for the issuance of a Visa credit card bearing the Gymboree brand and administration of an associated incentive program for cardholders. The program offers incentives to cardholders, including a 5% discount on purchases from Gymboree using the Gymboree Visa card and rewards in the form of a Gymboree gift card equal to 1% of total non-Gymboree purchases. The Bank is the sole owner of the accounts issued under the program and absorbs all losses associated with non-payment by the cardholder and any fraudulent usage of the accounts by third parties. The Company is responsible for redeeming the incentives, including the issuance of any gift cards. The Bank pays fees to the Company based on the number of credit card accounts opened and card usage and makes certain guaranteed minimum annual payments. Visa U.S.A. Inc. also pays fees to the Company based on card usage. Cardholder incentives are funded from the fees paid by the Bank to the Company. The Company recognizes revenues related to the Agreements as follows:

â€˘

New account fees are recognized as retail revenues on a straight-line basis over the average estimated life of the credit card relationship, currently estimated to be three years.

Minimum guaranteed annual payments, which exceed amounts earned based on the number of accounts opened and card usage, are recognized as retail revenues on a straight-line basis over the estimated life of the credit card relationship, currently estimated to be three years.

â€˘

Rewards earned are recorded as gift card liabilities and recognized as retail revenues when the gift cards are redeemed.

Revenue Recognition . Revenue is recognized at the point of sale in retail stores. Online revenue is recorded when the Company estimates merchandise is delivered to the customer. Customers generally receive merchandise within a few days of shipment. Shipping fees received from customers are included in net sales and the associated shipping costs are included in cost of goods sold. The Company also sells gift cards in its retail store locations and through its online stores. Revenue is recognized in the period that the gift card is redeemed. The Company recognizes unredeemed gift card balances over three years old as other income. Customers may earn Gymbucks and redeem them for merchandise at a discount during the redemption period. One-half of the Gymbucks coupon value is earned by customers when the minimum purchase requirement is met during the earning period, and the other half is earned when the additional purchase requirement is met during the redemption period. A liability is recorded for all Gymbucks earned, but not redeemed, within an accounting period. Sales are presented net of a sales return reserve, which is estimated based on historical return trends. If actual returns or Gymbucks redemptions exceed or fall short of estimates, adjustments to sales returns and markdowns may be recorded in the future.

Income Taxes. The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (â€śSFAS 109â€ť). SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in the tax provision in the period of change. In determining whether a valuation allowance is warranted, the Company takes into account such factors as prior earnings history, expected future earnings, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset. The Company is subject to periodic audits by the Internal Revenue Service and other taxing authorities. These audits may challenge certain of the Companyâ€™s tax positions, such as the timing and amount of deductions and allocation of taxable income to the various tax jurisdictions. Income tax contingencies are accounted for in accordance with FASB Interpretation No. 48, â€śAccounting for Uncertainty in Income Taxesâ€ť (â€śFIN 48â€ť), and may require significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years.

Fiscal 2007 Compared to Fiscal 2006

Net Sales

Net retail sales for fiscal 2007 increased to $909.4 million from $781.2 million in fiscal 2006, an increase of $128.2 million, or 16%. Comparable store sales increased 7%, primarily driven by a variety of factors including a positive response to the Companyâ€™s direct marketing efforts and continued strength in sales from the Gymboree boy departments, Janie and Jack, and Gymboree Outlet. Non-comparable store sales increased due to net store and square footage growth of 88 stores and approximately 200,000 square feet, respectively. There were 786 stores open at the end of fiscal 2007 compared to 698 at the end of fiscal 2006.

Gymboree Play & Music net sales for fiscal 2007 increased to $11.4 million from $10.5 million in fiscal 2006. There were 559 Gymboree Play & Music sites at the end of fiscal 2007 (including three Company-operated sites), compared to 548 sites (including three Company-operated sites) at the end of fiscal 2006.

Gross Profit

Gross profit for fiscal 2007 increased to $442.8 million from $384.5 million in fiscal 2006. As a percentage of net sales, gross profit decreased 0.5 percentage points to 48.1% from 48.6% last year. This decrease was primarily due to lower full-priced selling, as a result of a more promotional retail environment in fiscal 2007, as well as the absence of the 53 rd week in fiscal 2007 and relatively lower gross margins generated in the Crazy 8 division.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (â€śSG&Aâ€ť) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to $312.5 million in fiscal 2007 from $278.3 million in fiscal 2006, an increase of $34.2 million, or 12%. SG&A as a percentage of sales decreased 1.3 percentage points to 33.9% from 35.2% in fiscal 2006. SG&A expenses in fiscal 2006 included a charge of $3.7 million related to the retirement of the Companyâ€™s former Chairman and Chief Creative Officer (see Note 11). Excluding this item, SG&A as a percentage of sales decreased 0.8 percentage points to 33.9% from 34.7% in fiscal 2006. SG&A decreases as a percentage of sales for fiscal 2007 were primarily due to improved leveraging of store and corporate compensation expense (excluding share-based compensation), lower professional services fees and travel, partially offset by increases in marketing expenses and share-based compensation.

Interest Income

Interest income decreased to $2.6 million in fiscal 2007 from $5.3 million in fiscal 2006 resulting from lower average cash reserves due to the Companyâ€™s stock repurchase programs over the past year.

Other Income (Expense), net

Other income of $0.8 million in fiscal 2007 primarily represents revenue related to unredeemed gift cards and amounts related to a favorable legal settlement. Other income in fiscal 2006 was primarily due to amounts related to a favorable legal settlement.

Income Taxes

Income tax expense for fiscal 2007 and 2006 resulted in effective tax rates of approximately 39.8% and 36.9%, respectively. The effective tax rate in fiscal 2006 benefited from reversing a valuation allowance of approximately $3.6 million related to state net operating loss (â€śNOLâ€ť) carryforwards and other foreign tax attributes.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

13 weeks ended May 3, 2008, compared to 13 weeks ended May 5, 2007

Net Sales

Net retail sales in the first quarter of fiscal 2008 increased to $238.9 million from $206.7 million in the same period last year, an increase of $32.2 million, or 16%. Comparable store sales increased 4% over the same period last year. This increase was primarily due to increases in the total number of transactions and units per transaction, and was offset by slightly lower average unit retail prices due to the growth of Gymboree Outlet and Crazy 8. Non-comparable store sales increased due to net store and square footage growth of 91 stores and approximately 206,000 square feet, respectively. There were 811 stores open at the end of the first quarter of fiscal 2008 compared to 720 as of the end of the same period last year.

Gymboree Play & Music net sales in the first quarter of fiscal 2008 increased to $3.2 million from $2.6 million in the same period last year primarily due to increases in equipment sales, product sales, royalties and international franchise sales.

Gross Profit

Gross profit for the first quarter of fiscal 2008 increased to $123.4 million from $103.8 million in the same period last year. As a percentage of net sales, gross profit for the first quarter of fiscal 2008 increased 1.4 percentage points to 51.0% from 49.6% in the same period last year. This increase was primarily due to the Companyâ€™s continuing product cost reduction strategies and leveraging of buying costs, and was partially offset by lower average unit retail prices, relatively lower Crazy 8 gross margin rates, and increased occupancy costs.

Selling, General and Administrative Expenses

Selling, general and administrative (â€śSG&Aâ€ť) expenses, which principally consist of non-occupancy store expenses, corporate overhead and distribution expenses, increased to $81.8 million in the first quarter of fiscal 2008 from $70.2 million in the same period last year. As a percentage of net sales, SG&A expenses increased to 33.8% of sales for the first quarter of fiscal 2008 compared to 33.5% of sales in the same period last year. This increase was primarily due to higher share-based and incentive compensation.

Income Taxes

The Companyâ€™s effective tax rates for the first quarters of fiscal 2008 and 2007 were 40.2% and 39.9%, respectively. The actual fiscal 2008 effective tax rate will ultimately depend on several variables, including the mix of earnings between domestic and international operations, the Companyâ€™s overall level of earnings in fiscal 2008, the potential resolution of outstanding tax contingencies, and the ongoing impact of FIN 48. Seasonality

The Companyâ€™s business is impacted by the general seasonal trends characteristic of the apparel and retail industries. Sales from retail operations have historically been highest during the fourth fiscal quarter, somewhat lower during the first and third fiscal quarters, and lowest during the second fiscal quarter. Consequently, the results for any fiscal quarter are not necessarily indicative of results for the full year. These historical quarterly trends may not continue in the future.

Critical Accounting Policies and Estimates

There have been no material changes to the Companyâ€™s critical accounting policies and estimates affecting the application of those accounting policies since the Companyâ€™s Annual Report on Form 10-K for the fiscal year ended February 2, 2008.

Financial Condition

Liquidity and Capital Resources

Cash and cash equivalents were $58.1 million at May 3, 2008, an increase of $24.8 million from February 2, 2008. Working capital as of May 3, 2008 was $95.6 million compared to $58.0 million as of February 2, 2008.

Net cash provided by operating activities for the 13 weeks ended May 3, 2008 was $38.7 million compared to $27.9 million in the same period last year. This increase was primarily due to higher operating income.

Net cash used in investing activities for the 13 weeks ended May 3, 2008 was $14.1 million compared to net cash provided by investing activities of $45.5 million in the same period last year. This decrease was primarily due to the Company liquidating its marketable securities to complete share repurchase programs in fiscal 2007. Capital expenditures during the first quarter of fiscal 2008 were primarily related to the opening of 25 new stores, relocation, remodeling or expansion of 8 existing stores, information technology improvements and continued investment in the Companyâ€™s distribution center.

Net cash provided by financing activities for the 13 weeks ended May 3, 2008 was $0.3 million compared to $73.7 million used in financing activities in the same period last year. This increase was primarily due to completion of the Companyâ€™s share repurchase programs. Financing activities for the 13 weeks ended May 3, 2008, include approximately $4.6 million related to restricted stock and unit tax withholding activity.

The Company has an unsecured revolving credit facility for borrowings of up to $100 million expiring in August 2008. The credit facility may be used for the issuance of documentary and standby letters of credit, working capital and capital expenditure needs. The credit facility requires the Company to meet financial covenants on a quarterly basis and limits annual capital expenditures. As of May 3, 2008, the Company was in compliance with these covenants. As of May 3, 2008, $50.3 million of documentary and standby letters of credit were outstanding, and no borrowings were outstanding. The maximum amount of documentary and standby letters of credit outstanding during the quarter was $61.1 million.

The Company expects to extend or replace its existing credit facility prior to its expiration. The Company anticipates that cash generated from operations, together with its existing cash resources and funds available from current and future credit facilities, will be sufficient to satisfy the Companyâ€™s cash needs through fiscal 2008.

There have been no material changes to the Companyâ€™s contractual obligations since its Annual Report on Form 10-K for the year ended February 2, 2008.

CONF CALL

Jeff Harris

Hello, this is Jeff Harris, Vice President of Finance for Gymboree. Thank you for your interest in the Gymboree Corporation, and welcome to our report on business for the fiscal month of May 2008.

Before I continue, allow me to point out that the information presented in this recorded call contains forward-looking statements, including statements about trends and operations, future sales, expectations and financial performance. Actual results could differ materially from those forecasts as a result of a number of factors, including those set forth in our annual report on Form 10-K filed March 28, 2008 with the SEC.

Looking first at product deliveries in the Gymboree division, we delivered our summer vacation line in the first week of the month. The boysâ€™ line for summer vacation is themed â€śShark Reefâ€ť, and the girlsâ€™ entitled â€śPalm Springsâ€ť. In week 4, we sent the trends 1 line with the girlsâ€™ product featuring a Beach Shack theme; and boys, Safari Outback.

The strongest performing departments during the month were kid boy and newborn, followed by accessories, baby boy, baby girl and kid girl. By geographic region, the Mid-Atlantic was the strongest performing during the month, followed by the Ohio Valley, Midwest, the Southeast and South.

Gross margins finished the month on plan and inventories are well positioned for our upcoming promotional events in June. In regards to events for the month of May, the first weekend of both years featured our â€śCircle of Friendsâ€ť promotion, offering our most loyal customers 30% off of their entire purchase. Starting in week 3 of both years, we held our holiday-related event, offering 20% off of already marked-down product. To maximize gross margin dollars, the event continued through the end of the fiscal month this year. The prior year campaign ended after the holiday weekend.

Our Gymbucks issuance period started in the second half of the month in both years.

Sales during the first half of the month were also supported by our summer product theme mailer, which hit homes in the back half of the month of April in both the current and prior year. Consistent with most of our direct mail efforts, the mailer is targeting prospective customers with a value proposition and was valid through the first two weeks of fiscal May.

Turning to the Janie & Jack division, in terms of line sets we set our summer 2 and swim 3 lines in week 2 of May. For the month, the strongest performing department was boy, followed by the girl, layette and then accessories. Janie & Jack division results were on plan with our expectations.

Looking at new store openings, during the month of May we opened two Gymboree stores, three Gymboree outlets and one Crazy 8 store. Our total store count now stands at 817, consisting of 606 Gymboree stores, 99 Gymboree outlets, 95 Janie & Jack shops and 17 Crazy 8 stores.

Turning to sales and earnings expectations, we continue to expect second fiscal quarter same-store sales growth in the range of low single-digits. We also continue to anticipate earnings per diluted share for the quarter in the range of $0.18 to $0.20.

As mentioned previously, when reviewing this estimate, please keep in mind that the prior year second quarter earnings of $0.19 per diluted share included a $0.02 net benefit due to a lower tax rate of just 36%.

This concludes our call for the fiscal month of May. Again, thank you for your interest in Gymboree. For further information you can reach us at 415-278-7933.

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